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Monday, August 8, 2022

Bill Gross Ruled the Bond World for Years. Then He Was Deposed.

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How One Man Made a Market, Built an Empire, and Lost It All
By Mary Childs

Perhaps you’ve heard of Bill Gross. Or maybe the name rings a bell. If not, you or someone you know probably had a direct or indirect exposure to his Total Return bond fund, which he managed for decades. By 2013 Total Return had amassed nearly $500 billion in assets. Gross took home $300 million in one year alone and had a spare $700 million of his own money to invest in a new fund he started after leaving Total Return.

Fortune magazine crowned Gross “the Bond King” in 2002. The fund rating and research firm Morningstar named him Fixed Income Manager of the Year in 1998, 2000 and 2007, and then of the decade — the Academy Awards of the fund world. He was a ubiquitous presence on CNBC, Bloomberg Television and in the financial press, and investors hung on his every pronouncement.

And then he faltered. His employer, the Allianz-owned Pacific Investment Management Company (known by its acronym, Pimco), unceremoniously dumped him. His new fund was a bust. His wife left him. Increasingly alienated and bitter, Gross retired to golf and obscurity, a last chapter he surely would never have chosen.

Mary Childs, who covered Gross and the bond world for Bloomberg News, now works for NPR’s “Planet Money.” Her reporting in “The Bond King,” her new biography of Gross, is admirably thorough. She seems to have interviewed or tried to interview nearly everyone who worked with him over the years, and she dutifully recounts his rise to the pinnacle of the fund world.

Born in 1944 in Ohio to what he describes as “cold Canadian parents” (his mother never stopped criticizing; his father wouldn’t play baseball with him), Gross went on to Duke and U.C.L.A., where he earned an M.B.A. Along the way he served in the Navy during the Vietnam War and played blackjack in Las Vegas. He claimed his gambling skills honed his understanding of risk, which he put to good use in the once-stodgy bond market. His great discovery (though he was hardly alone in the realization) was that bonds could be aggressively traded in addition to generating interest payments. Hence the name “Total Return” — interest payments plus capital gains from buying and selling.

Childs’s narrative picks up steam in 2007 when Mohamed El-Erian, a former Pimco manager, returned to the company after a 20-month stint managing the Harvard endowment. He was named co-chief executive and co-chief investment officer and, unofficially, was deemed Gross’s eventual successor.

As should have been obvious, co-anything with Gross — who was accustomed to being the star of the show — was doomed. When El-Erian succeeded (or worse, earned press accolades), Gross seethed with jealousy; if El-Erian failed, Gross subjected him to withering criticism. Gross grew increasingly paranoid, obsessed with exposing El-Erian moles he believed were undermining him and leaking to the press.

In one bizarre episode, Gross pulled his car to the side of a highway and impulsively called a Reuters reporter, Jennifer Ablan. He told her — on the record — that he knew El-Erian had been undermining him because he’d secretly been monitoring El-Erian’s phone calls. “I know El-Erian has been talking to you” and The Wall Street Journal, he told her. Reuters promptly printed the conversation, which made Gross seem “unhinged,” as one of his colleagues put it. Pimco issued a statement denying that Gross had made such comments, but according to Childs, Gross then promised the firm’s executive committee that he would no longer comment about El-Erian in the press. A furious El-Erian finally resigned in January 2014.

A few months later, at a Morningstar investment conference, Gross appeared onstage wearing sunglasses and called himself “a Wall Street version of Justin Bieber.” He devoted part of his April 2014 newsletter to discussing his belief that his deceased cat Bob was watching him on television and also while he got in and out of the shower. “I’m not a particularly shy guy, but then why was a female cat named Bob checking me out all the time?”

Childs wisely avoids diagnosing Gross’s state of mind, but notes “about half the rank and file were openly wondering if Gross had lost it.” His colleagues tried to explain his behavior to increasingly anxious clients. “He’s always been nuts. Ha-ha! Just an eccentric guy.”

At other times Gross seemed perfectly lucid in his determination to cling to power, even as his investment performance faltered. But by September 2014, his superiors at Allianz were prepared to fire him. Before they could act, though, Gross thwarted them by signing on at rival Janus Capital.

Childs reports that he subsequently spent much of his time obsessing about his former colleagues and plotting revenge. Every day at 3 p.m. he checked the performance of his new fund and compared it to Total Return’s. “I have a happy night if I’m doing better, and a not so happy night if I’m not doing better,” he said. Predictably, that was a recipe for misery. He sued Pimco. When his wife filed for divorce, he fought bitterly. In one of his newsletters he branded his youngest son a disappointment and a “black sheep,” evidently because he had tattoos. In a play for sympathy, he told Bloomberg TV he had been diagnosed with Asperger’s.

After dismal results in his new fund, Gross retired in 2019 — but he has hardly “lost it all,” as the book’s subtitle suggests; Forbes estimated his net worth this year at $2.6 billion. A comment he’d made in one of his 1993 newsletters proved prescient: “Excellence for most of us blossoms and flourishes for only a brief flicker of time.”

“The world he’d built was cruel, petty, filled with boys pulling wings off flies — but it had been his,” Childs writes. “At the end, it had turned its brutality on him.”

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